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European Commission starts an infringement procedure against Belgium for late transposition of new directive on representative actions

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The European Commission reported on 27 January 2023 on its website that it will initiate an infringement procedure, amongst others against Belgium, for the failure of many EU Member States to transpose the Directive on representative actions.

The European governing bodies launched an initiative in 2020 to start streamlining class actions in all Member States. The Directive 2020/1828 of the European Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC (the Directive) in fact sets a number of minimum standards on class actions for all European Union Member States. The Member States were supposed to have transposed this Directive into national law by no later than 25 December 2022, and to notify the Commission accordingly. This is because the intention was that these regulations would enter into force as of 25 June 2023. However, we observe that to date, Czechia, Greece, France, Italy, Lithuania, Slovenia, Finland, Sweden, Hungary and the Netherlands have transposed the Directive into national law. In Belgium, the transposition is still pending.

Consequently, Belgium, along with a whole number of other Member States, has received a formal notice of default requesting further information from the European Commission for non-/incomplete transposition of the Directive. The Member States in question are required to send a detailed reply within a specified period, which is usually 2 months.

In this e-zine, we will look ahead and explain the upcoming changes due to the implementation of the new Directive and their impact. Once the Belgian preliminary bill is publicly available, we will inform you further about the concrete changes for Belgian procedures. 

Minimum harmonisation across Europe

Class actions or group claims originate from the common law system. The system allows a large number of injured parties, each personally harmed by a single common cause, to go to court together to seek compensation for their losses. The group interests are represented by one single representative and the judgment in the proceedings is in principle binding for all the stakeholders. 

As a result of the recommendation of the European Commission of 11 June 2013, 19 Member States, including Belgium, have already implemented a mechanism that enables a claim for collective redress. However, the diversity in the regulations is considerable. For example, some Member States limit these group claims to specific sectors, mainly consumer claims. 

Some recent cases of gross violations of consumer rights prompted the European Commission to introduce a new Directive. This Directive is not aimed at full European harmonisation, but sets minimum standards concerning class actions so that consumers enjoy the same minimum level of protection in every Member State. 

By no later than 25 December 2022, all Member States had to implement at least one efficient and effective procedural mechanism for group claims. Competent entities should be given the possibility to demand a cessation measure, provisional or definitive measures to end a violation, or a recovery measure (such as damages, repair, replacement, price reduction, agreement termination or reimbursement). 

The aim of this Directive is to achieve a high level of consumer protection and improve the access to justice. As Belgium already has a well-developed class action mechanism, the required adjustments to the current legal framework are minimal. However, this is not the case everywhere: Member States such as Austria and Ireland will have to develop a completely new legal framework. 

Expansion of the scope

Member States should make it possible to initiate class action proceedings for violations of a wide range of directives and regulations listed in the annex to the Directive. This includes general consumer protection regulations, such as on unfair terms in consumer contracts, unfair B2C practices and misleading advertising, data protection, as well as special and sector-specific regulations on travel and tourism, financial services, energy and telecommunications.

The scope of the Belgian legislation on group claims will need to expand ratione materiae. For instance, the investor protection regulations such as those arising from Directive 2014/65/EU ("MiFID II") or Regulation (EU) 2017/1129 ("prospectus") will have to be able to serve as a basis for collective action in the future. Currently, this is not yet the case.

Different actors in class action proceedings

The Directive stipulates that a class action can only be initiated by a 'qualified entity' who represents the consumers. Each Member State will have to designate at least one qualified entity. Member States possess broad discretional powers regarding the criteria which qualified entities must meet. In Belgium, a number of entities are already recognised as group representatives, but in practice, Test Aankoop is the only organisation that has already initiated a limited number of class action proceedings. 

Member States have the choice of implementing an opt-in or opt-out system (or a combination of both) for stakeholders. With an opt-in mechanism, consumers must explicitly indicate that they wish to be represented by the qualified entity. Under an opt-out mechanism, it is assumed that, barring notice to the contrary, all affected consumers automatically belong to the group. 

In Belgium, the court currently determines, in its decision on the admissibility of the claim, which option system will be applied to the proceedings. Depending on the circumstances of the proceedings, an opt-in or opt-out will therefore apply. 

Possibility of cross-border claims

A new element that significantly expands the scope of collective redress in Europe is the possibility of bringing cross-border claims. The Directive provides that qualified entities should be allowed to initiate a claim in a Member State other than the one in which they are designated. Entities that wish to initiate cross-border actions must, however, meet uniform criteria of independence, transparency, they must be non-profit and show a legitimate interest in protecting consumers. The European Commission will maintain a list of all qualified entities (expected to be mainly public authorities and consumer organisations).

Belgium will have to implement the possibility of initiating cross-border claims in Belgian legislation. It is probable that in the future, cross-border collective redress actions will be initiated and that qualified entities from different Member States will compete with each other, as they have the unhindered possibility to do so under the cross-border mechanisms. For example, a Belgian collective representative could bring a class action against an Austrian ski resort because, despite the fact that the coronavirus was clearly present in the ski resort, it remained accessible and, as a result, thousands of Belgians became infected. 

Funding of the class action

To prevent the abuse of class actions, punitive damages should be avoided. The Directive provides strong guarantees against abusive litigation by applying the "loser pays" principle. The defeated party thus pays the litigation costs of the winning party. In this way, a balance is struck between improving consumers' access to justice and providing businesses with appropriate safeguards against abusive litigation. 

Third-party funding of group claims, which is possible in Denmark, for example, since 2017, is not forbidden by the Directive but there are safeguards required. For instance, Member States must avoid conflicts of interest between the funder and the claimant. Third-party funding is currently not prohibited, nor regulated in Belgium and it has never been reviewed by the Belgian courts. 

However, the matter will be regulated in the future by the Directive (EU) 2020/1828 on representative action for the protection of the collective interests of consumers which needs to be implemented into Belgian law starting from June 25, 2023. The Directive will bring some restrictions to the use of third-party funding, such as the fact that decisions taken by the qualified entity should not be unduly influenced by the funder and that the Directive will prevent conflicts of interests between the funder and claimants.

In order to avoid commercialisation of class action litigation and not expose companies to potentially unnecessary, unfair and costly litigation, it is unlikely that this option will be introduced in the Belgian legal system. 

Risk of forum shopping?

It is probable that, despite minimum harmonisation, the landscape of class action proceedings will still remain quite diverse. After all, Member States decide for themselves within the parameters of the Directive how they implement certain aspects in their national legislation. This could lead to a trend of forum shopping in the European Union. 

In Belgium, the existing class action mechanism has met a whole range of European requirements for several years already. Nevertheless, possibly due to the high procedural costs and the ban on punitive damages, only a small number of class actions have been initiated. Still, it is recommended that companies take this procedure into account and develop a strategy to respond quickly and adequately to avoid image and reputation damage. After all, the class action procedure is an efficient tool for pressure mainly by consumers (but enterprises can also act as claimants) towards (other) enterprises, and this position will only be strengthened by the future minimum harmonisation in Europe. So, it still remains to be seen how Member States will transpose this Directive and how the market will react to it.